Holding

The arbitration clause in the charter party, expressly incorporated in the bills of lading, is binding on the parties and the suit must be stayed.

Summary

The owners of the vessel M.V. Baltic Confidence and the charterer (respondent No.2) issued five bills of lading that incorporated the terms of their time‑charter party, including an arbitration clause. The holder of the bills of lading (respondent No.1) sued them in admiralty court for negligence and breach of carriage. The shipowners sought a stay of the suit under Section 45 of the Arbitration and Conciliation Act, 1996, arguing that the arbitration clause in the charter party was incorporated into the bills of lading and therefore binding on the parties. The High Court rejected the application, holding the clause did not apply to disputes under the bills of lading; the division bench affirmed. On appeal, the Supreme Court examined the intention of the parties, the specific incorporation wording “including the law and arbitration clause”, and a host of English precedents. It held that where the incorporation clause is clear and does not create inconsistency or absurdity, the arbitration clause is effective, and the suit must be stayed. The appeal was allowed, the stay granted, and the High Court order set aside.

Issues considered

The arbitration clause in the charter party is incorporated by reference into the bills of lading and is therefore binding on the parties to the bills of lading.
Whether the High Court correctly held that the arbitration clause does not apply to disputes arising under the bills of lading.
Whether Section 45 of the Arbitration and Conciliation Act, 1996 can be invoked to stay the admiralty suit.

Legislation cited

Arbitration and Conciliation Act, 1996s. 45

Subjects

arbitrationincorporation clausebill of ladingcharter partySection 45stay of suitcommercial contract interpretationintention of parties

Judgment

THE OWNERS AND PARTIES INTERESTED A
IN THE VESSEL M.V. "BALTIC CONFIDENCE" AND ANR.
v.
STATE TRADING CORPORATION OF INDIA LTD. AND ANR.

AUGUST 20, 2001
B
[A.P. MISRA AND D.P. MOHAPATRA, JJ.]

Arbitration :

Arbitration and Conciliation Act, 1996-Section 45-Charter Party C
Agreement-Arbitration Clause in agreement-Incorporation in Bill of
Lading-Applicability to the disputes arising under the Bill of lading-Held,
the intention of parties to be ascertained-If construction of the clause leads
to no inconsistency or insensibility intention of the parties to be given effect
and arbitration clause made binding on parties.
D
Appellants are the owners and parties interested in a ship. Respondent
No.2 is the charterer of the said sh.ip under the Charter Party Agreement.
Five Bills of Lading were issued by the appellants wherein Respondent No.
2 agreed to carry on board the stock. Respondent No. I is the holder and
endorsee of the Bills of Lading and the_ owner of the stock. E
Respondent No. I filed admiralty suit in the High Court against the
appellant and Respondent No. 2 alleging that they had negligently and in
breach of their duties as bailees failed to deliver goods to plaintiff in good
order and condition and in consequence thereof Respondent No.I suffered
losses. Appellants and Respondent No. 2 filed application for stay of suit p
proceedings and for reference to arbitraiQn under section 45 of the
Arbitration and Conciliation Act, 1996 in terms of Clause 62 of the Charter
Party Agreement which stipulated that any dispute arising out of the said
charter party shall be referred to arbitration. Single Judge rejected the
application holding that the arbitration clause in the Charter Party Agreement
was not applicable to the alleged disputes arising from the Bills of Lading. G
Division Bench upheld the order. Hence the present appeal.

Allowing the appeal, the Court

HELD: I.I. The intention of the parties to the Bill of Lading is to be
699 I-I
700 SUPREME COURT REPORTS (2001] SUPP. I S.C.R.

A ascertained to consider whether the arbitration clause in a Charter Party
Agreement was incorporated by reference in the Bill of Lading. The
arbitration clause in the Charter Party Agreement is to be read in the manner
provided in the incorporation clause of the Bill of Lading. While ascertaining
the intention of the parties attempt should be made to give meaning and effect
to the incorporation clause and not to invalidate or frustrate it giving a literal,
B pedantic and technical reading of the clause. If on a construction of the
arbitration clause of the Charter Party Agreement as incorporated in the Bill
of Lading it does not lead to inconsistency or insensibility or absurdity then
effect should be given to the intention of the parties and the arbitration clause
as agreed should be made binding on parties to the Bill of Lading. If the
C parties to the Bill of Lading being aware of the arbitration clause in the
Charter Party Agreement have specifically incorporated the same in the
conditions of the Bill of Lading than the intention of the parties to abide by
the arbitration clause is clear. 1713-B, C, D, El

Hamilton and Co. v. Mackie and Sons., Vol. V. 1888-9; The Times Law
D Reports, page 677; T. W Thomas & Co. limited and Portsea Steamship
Company, limited, 1912 Appeal cases page 1; In re: The "Marak", Lloyd's
List Law Reports, 1964 Vol. 2; Astra Valiente Compania Naviera SA v.
Pakistan Ministry of Food and Agriculture, (No. 2) The. Emmanuel
Colocotronis (No2), The Queen's Bench Division (Commercial Court), (1982)
1 All ER 823; Miramar Maritime Corporation and Ho/born Oil Trading
E
ltd, (1984) Appeal Cases 676; Navigazione Alta Italia SPA v. Svenska
Petroleum AB. (The "Nai Matteini"), 1988 Vol. I Lioyd's Law Reports 452;
Pride Shipping Corporation v. Chung Hwa Pulp Corporation and Anr., (The
Qinoussin Pride") 1991 Vol. 1 Lloyd's Law Reports 126; Dava/ Aciers
D'usionor Et De Saci/or and Ors. v. Armare S.R.l. (The "Nerano") 1996 Vol
F I Lloyd's Law Reports page I; Atlas levante-linie Aktiengese/lschaft v.
Gese/lschaji Fuer Getriedehandel A.G., and Bacher (The "Phonisien"), 1966
Vol. I Lloyed's List Law Reports at p.150; Union of India v. D.M. Revri and
Co., 119771 I SCR 483; A/imenta S.A. etc. v. National Agricultural
Cooperative Marketing Federation of India ltd and Anr., 119871 I SCC
G 615 and Dwarkadas and Co. v. Daluram Goganmull. AIR (38) (1951) Calcutta
I 0, referred to.

The Rena K. 1978 I Lloyd's Rep., 545; Hamilton and Co. v. Mackie
and Sons, (1889) 5 T.L.R. 677; Temperley Steam Shipping Company v.
Smythe and Co., (1905) 2 K.B. 791 and Thomas and Co. ltd. v. Portsea
H Steamship Company ltd, (1912) A.C.I, cited.
OWNER AND PART!ES BALTIC CONFIDENCE v. S.T.C. [MOHAPATRA. J.] 701

1.2. In the instant case while incorporating the conditions of the A
Charter Party Agreement in the Bill of Lading specific reference has been
, ' made to the arbitration clause by use of the expression 'including the law
and arbitration clause'. Therefore, the parties have taken care not to couch
the interpretation clause in the Bill of Lading in general terms but have
made their intention clear that the disputes arising thereunder should be B
resolved by arbitration according to the clause in the Charter Party
Agreement. On a fair reading of clause 62 of the Charter Party Agreement
(Arbitration clause) there is no manifest inconsistency or insensibility.
Therefore, effect should be given to the intention of the parties to incorporate
the arbitration clause in the Charter Party Agreement in the Bill of Lading.
1713-D, G, H; 714-AI C
1.3. It cannot be said that the arbitration clause is inoperative as the
expression 'Charter Party' in clause 62 of the Charter Party Agreement
was not changed to 'Bill of Lading' while incorporating the same in the latter
since it goes against the clear intention of the parties as evident from the
incorporation clause. 1714-CI D
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5537 of
2001.

From the Judgment and Order dated 2.8.1999 of the Calcutta High Court
in APOT 916/98. E
R.F. Nariman, Tilok Bose, C.R. Addy, P. Addy, Ghanshyam Joshi and
S. Saxena for the Appellants.

Dr. A.M. Singhvi, Padam Khaitan, Ms. Gauri Rasgotra, Ms. Purnima
Singh, Suman Jyoti Khaitan, S.N. Mookherjee and H.K. Puri (N.P.) for the F
Respondents.

The Judgment of the Court was delivered by

D.P. MOHAPATRA, J. Leave granted.
G
The appellants herein are the owners & parties interested in the Vessel
M.V. "Baltic Confidence" (for short 'the ship'). The 2nd respondent herein is
the charterer of the said ship under the Time Charter Party Agreement entered
between it and the appellants with effect from 8th of May, 1997. Five Bills of
Lading all dated 26th May, 1997 were issued by the appellants wherein the
respondent no.2 agreed and undertook to carry on board the said ship H
702 SUPREME COURT REPORTS [2001] SUPP. I S.C.R.

A 11,433.510 metric tonnes of Canadian Yellow Peas ("the peas" for short) from
the Port of Vancouver in Canada to the Port of Calcutta in good order and
condition. The respondent no. I herein is the holder and endorsee of each of
the said Bills of Lading and the owner of the said stock of peas. The said
respondent no. I filed Admiralty Suit No.17 of 1997 in the High Court at
Calcutta in its admiralty jurisdiction against the appellants and respondent
B no.2 alleging inter alia that the defendants had negligently and in breach of
the contract of carriage and/or breach of their duties as bailees, failed to
deliver goods to the plaintiff in good order and condition; the defendants
have delivered part of the goods weighing 4,910 metric tonnes damaged by
sea water and in consequence the plaintiff had suffered loss and damage at
C least in the sum of US$ 1,384,620 being the value of the said damaged quality.
The plaintiff further alleged that it has suffered further loss and damages. It
was in these circumstances that the plaintiff filed the suit.

The appellants and respondent no.2 herein as the I st and 2nd defendants
in the suit filed an application under Section 45 of the Arbitration and
D Conciliation Act, 1996 (for short the Act') praying inter alia for staying of the
proceedings in the suit and for referring the disputes to arbitration in terms
of Clause 62 of the Charter Party Agreement which was specifically
incorporated as a condition of the Bills of Lading. The said application was
rejected by a single Judge of the Court by the-order passed on 10th November,
E 1998 holding, inter alia, that the arbitration clause in the Charter Party Agreement
was not applicable to the alleged disputes arising from the Bills of Lading and,
therefore, the application filed by the defendants was not maintainable. On
appeal by the defendants, the Division Bench of High Court confirmed the
order passed by the single Judge. vide the judgment dated 2nd August, 1999.
The saiL judgment is under challenge in this appeal filed by the defendants.
F
The question that arises for determination is, whether the High Court,
on construction of the terms and conditions of the Charter Party Agreement
and the condition in the Bills of Lading incorporating the terms and conditions
of the Charter Party Agreement into it was right, in holding that the parties
G in the suit are not bound by the agreement contained in Clause 62 of the
Charter Party Agreement for purpose of arbitration of the disputes raised i:i
the suit. Before proceeding to consider the question further it will be
convenient to quote Clause 62 of the Charter Party Agreement and the
relevant clause in the Bills of Lading. Clause 62 of the Charter Party Agreement
is as follows :
H
OWNER AND PARTIES BAL TiC CONFIDENCE''· S.T.C. [MOHAPATRA. J.] 703

"This Charter Pa1ty shall be governed by and construed in accordance A
with English Law and any dispute arising out of this Charter Party
shall be referred to arbitration in London in accordance with the
Arbitration Acts 1950 and 1979 or any statutory modification or re-
enactment thereof for the time being in force. Unless the parties agree
upon a sole arbitrator, one arbitrator shall be appointed by each party B
and the arbitrators so appointed shall appoint a third arbitrator, the
decision of the three-man tribunal thus constituted or any two of
them, shall be final. On the receipt by one party of the nomination in
writing of the other party's arbitrator, that party shall appoint their
arbitrator within fourteen days, failing which the decision of the single
arbitrator appointed shall be final. For disputes where the total amount C
claimed by either party does not exceed USD 50000 the arbitration
shall be conducted in accordance with the Small Claims Procedure of
the London Maritime Arbitrators Association."

Clause I of the Conditions of Carriage of the Bills of Lading reads as
follows: D
"All terms and conditions, liberties and exceptions of the Charter
Party, dated as overleaf, including the Law and Arbitration Clause, are
herewith incorporated."

The question for consideration is whether the parties agreed that Clause E
62, the arbitration clause in the Charter Party Agreement shall be applicable
to disputes arising under the Bills of Lading. For determination of this question
it is necessary to ascertain the intention of the parties to the Bills of Lading.
This question has engaged the attention of courts in India and in England
from time to time.
F
In Hamilton and Co. v. Mackie and sons, Vol. V, 1888-9, The Times Law
Reports, page 677 - the plaintiffs were the owners of the steamer President
Garfield, and the action was brought for the balance of the Bill of Lading
freight, the defendants being the consignees of the cargo and endorsees of
the Bill of Lading. It was agreed by the Charter Party that any dispute that G
might aris.:! under the charter was to be settled by arbitration at the port where
the dispute arose. On the Bill of Lading the words were stamped, "All other
terms and conditions as per Charter Party." The Judge at Chambers stayed
the action on the ground that the matter ought to have gone to arbitration,
and the Divisional Court upheld his decision. The Court of Appeals, allowing
the appeal, held that "Where there was in a bili of lading such a condition H
704 SUPREME COURT REPORTS [2001] SUPP. I S.C.R.

A as this, "All other conditions as per Charter Party," it had been decided that
the conditions of the Charter Party must be read verbatim into the Bill of
Lading as though they were there printed in extenso. Then if it was found that
any of the conditions of the Charter Party on being so read were inconsistent
with the Bill of lading they were insensible, and must be disregarded. The
Bill of Lading referred to the Charter Party, and therefore when the condition
B was read in, "All disputes under this charter shall be referred to arbitration",
it was clear that the condition did not refer to disputes arising under the Bill
of Lading, but to disputes arising under the Charter Party. The condition
therefore was insensible, and had no application to the present displlle,
which arose under the Bill of Lading."
c (Emphasis supplied)

In T. IV. Thomas & Co. limited and Portsea Steamship Company, limited,
1912 Appeal Cases page I, the House of Lords considered a case in which
the Bill of Lading provided that the goods shipped thereunder should be
delivered to the shipper or to his assigns, "he or they paying freight for the
D said goods, with other conditions as per charter party," and in the margin was
written, in ink, "Deck load at shipper's risk, and all other terms and conditions
and exceptions of charter to be as per charter party, including negligence
,.
clause." The charter party provided that "Any dispute or claim arising out.
of any of the conditions of this charter shall be adjusted at port where it
occurs, and same shall be settled by arbitration". Holding that the arbitration
E
clause was not incorporated in the Bill of Lading, the House of Lords observed,
inter alia, that : "In determining what passes under a general clause of lhis
kind the Bill of lading is Jhe primary document to be looked at, and lhe
queslion of the scope of the cesser clause is not relevant to Iha/ question.
Dealing with the question Lord Atkinson observed:
F
"I think it would be a sound rule of construction to adopt that when
it is sought to introduce into a document like a bill of lading - a
negotiable instrument - a clause such as this arbitration clause, not
gennane to the receipt, carriage, or delivery of the cargo or the payment
of freight, - the proper subject-matters with which the bill of lading is
G conversant, - this should be done by distinct and specific words, and
not by such general words as those written in the margin of the bi II
of lading in this case."

Lord Robson made the following observations :

H "It is to be remembered that the bill of lading is a negotiable instrument,
OWNER AND PARTIES BALTIC CONFIDENCE v. S.T.C. [MOHAPATRA, J] 705
and if the obligations of those who are parties to such a contract are A
to be enlarged beyond the matters which ordinarily concern them, or
't
if it is sought to deprive either party of his ordinary legal remedies,
the contract cannot be too explicit and precise. It is difficult to hold
that words which require modification to read as part of the bill of
lading and then purport to deal only with disputes arising under a
document made between different persons are quite sufficiently explicit B
for the appellant's purpose."
(Emphasis supplied)

In re: The "Merak", Lloyd's List Law Reports 1964 Vol.2, the Court of
Appeal considered the clauses in the charter party entered into between the C
parties, in clause I0 whereof it was stipulated : "The bills of lading shall be
prepared in the form endorsed upon this Charter and shall be signed by the
Master, quality, condition and measure unknown. freight and all terms,
conditions, clauses (including Clause 32), and exceptions as per this Charter."
Clause 32 (arbitrati6n clause) provided inter alia "All claims must be made in
writing and the Claimant's Arbitrator must be appointed within twelve months D
of the date of final discharge otherwise the claim shall be deemed waived and
absolutely barred." Bills of lading issued by master of Merak acknowledging
shipment of timber at Walkom for voyage "as per charter dated the 21st of
April, 1961," and providing: "All the terms, conditions, clauses and exceptions
including Clause 30 contained in the said charter party apply lo this Bill E
of Lading and are deemed to be incorporated herein." The Court of Appeal
(Sellers, Davies and Russell, L.JJ.) held that: "Bill of Lading was issued under
charter of Apr.21; that commencement of arbitration proceedings was "suit
brought" within Art.Ill, Rule 6, of Hague Rules; and that, therefore, arbitration
clause was not repugnant to Hague Rules and nullified by clause paramount;"
ft was further held that: "Clause 32 was incorporated by language of Bill F
of Lading and by express reference in Clause 32 to dispute arising out of
"any Bill of Lading issued hereunder". In this connection, Lord Scarman, J.,
construing the two documents, held as follows:

"(I) that the charter party arbitration clause made sense in the context G
of the bills of lading and the general words of the bill of lading
incorporation clause sufficed to incorporate it; that the reference to
Clause 30 was falsa demonstratio which should not be allowed to
obscure clear intention of incorporation clause; (2)(i) that bills of
lading were issued under charter-patty of Apr.21; (ii) that the arbitration
clause was not inconsistent with clause paramount; and that, therefore, H
706 SUPREME COURT REPORTS (2001] SUPP. I S.C.R.

A arbitration clause was included in bills of lading; (3) that Sect. 4(2)
gave effect to intention of the Protocol on Arbitration Clauses, 1923,
which was that where there was a business contract between parties
subject to different contracting States, those parties were to be referred
to arbitration if t!1ey had so agreed, whether their agreement related
to present or future differences; that, therefore, Sect.4(2) applied to
B agreement in this case; and that, accordingly, proceedings would be
stayed; (4) that no undue hardship would be caused if time for giving
notice of arbitration were not extended; and that, therefore, no extension
would be granted."
(Emphasis supplied)
c In the case of Astra Valiente Compania Naviera SA v. Pakistan Ministry
of Food and Agricullllre {No2) The Emmanuel Co/ocotronis (No2), The
Queen's Bench Division (Commercial Court), (1982) I All ER 823, considered
the case in which the charter party provided, inter alia, that the charter party
contract was to be completed and superseded by the signing of a Bill of
D Lading and further that the Bill of Lading was to contain a clause providing
for arbitration in London by two arbitrators and umpire and that any claim was
to be made in writing within nine months of final discharge. The shipment was
acknowledged by a Bill of Lading which included a clause that 'All qther
conditions, exceptions, demurrage, general average and for disbursement as
E per (the) charter-party'. The Bill of Lading did not specifically provide for
arbitration. The question arose whether the buyers were bound to arbitrate.
In that connection, it was observed, inter alia, that: "Provided that the Bill of
Lading itself directed attention to the Charter Party, it was permissible and
proper to look at the Charter Party to ascertain the terms to be incorporated
in the Bill of Lading. Applying that principle, the Bill of Lading, by referring
F to 'All other conditions........ As per (the) charter-party', specifically required
reference to the Charier Party, which in turn clearly and specifically provided
/hat the arbilration clause was to be one of the conditions incorporated in
the Bill of lading. The buyers were therefore bound to arbitrate under the
arbitration clause in the Charier Party and their appeal would accordingly
be dismissed." (Emphasis supplied)
G
In Miramar Maritime Corporation and Ho/born Oil Trading ltd., 1984
Appeal Cases 676, House of Lords considered the case where the owners
entered into a tanker voyage Charter Party in the standard Exxonvoy 1969
form with charterers and the Bill of Lading purported to incorporate all the
H terms of the charter (except the rate and payment of freight), including a
OWNER AND PARTIES BAL TIC CONFIDENCE v. S.T.C. [MOHAPATRA. J.j 707

demurrage clause rendering the charterers liable for demurrage, and the owners A
claimed that the demurrage clause thereby incorporated into the bill rendered
the consignees of the cargo, as holders of the Bill of Lading, directly liable
for the demurrage incurred and held that on the true construction of the
lan_guage of the Bill of Lading it was the intention of the parties to the Bill
of Lading contract that the charterer alone should be liable for demurrage. In
that connection Lord Diplock observed : B
" ........... I regard it, however, as more important that this House should
take this opportunity of stating unequivocally that, where in a Bill of
Lading there is included a clause which purports to incorporate the
terms of a specified Charter Party which are directly germane to the C
shipment, carriage or delivery of goods and impose obligations upon
the "charterer" under that designat~on, are presumed to be incorporated
in the Bill of Lading with the substitution of (where there is a cesser
clause), or inclusion in (where there is no cesser clause), the designation
"charterer", the designation "consignee of the cargo" or "Bill of
Wiq~~- D
The Queen's Bench Division (Commercial Court) in the case of
Navigazione Alta Italia Sp A v. Svenska Petroleum AB (The ''Nai Matteini"),
1988 Vol.I Lloyd's Law Reports 452, considered the issue : whether the Bill of
Ladir,g was effective to incorporate the arbitration clause in either the head
charter or the sub-charter and if so which, and held as follows: E
"that (I) the wording of the bill of lading gave no indication whether
the unidentified charter referred to was the head or sub-charter both
with their quite different forms of arbitration clause; the bill of lading
complied with neither charter-party requirement but was a standard
form held at Ras Tanura which was printed in the form as the loading F
port; there was no relevant bill of lading as referred to in the form and
the form gave no clue as to what arbitration clause in what charter·
party was referred to (see p.459 cols. I and 2);
(2) there was no arbitration agreement iri force between the owners
and consignees and the bill of lading did not have the eftect of G
incorporating an arbitration clause which extended to disputes under
the bill between the plaintiffs and the defendants (see p.459, col.2);
(3) the normal rule was that the presumed intention of the parties to
the bill of lading contract was to incorporate the head charter; the bill
of lading was governed by the terms of the head charter but the H
708 SUPREME COURT REPORTS (2001] SUPP. I S.C.R.

A arbitration clause in that charter was not to be read as applying to
anything other than disputes between the owners and charterers
arising under that charter-party (see p.459, col. 2).

"(4) the purpose of the mechanics in any arbitration clause was to put
the other side on notice that a claim was to be made so as to give
B the other party a proper opportunity to prepare and take part in
choosing the arbitral tribunal; the telex of June 23 achieved this
although it wrongly claimed that the venue was London; and if the
head charter was incorporated and the arbitration clause had to be
modified to cover this dispute the wrong assertion that London was
the venue was not of substance; the clause was not incorporated and
c the plaintiffs were entitled to their declaration (see p.460, col.I)."

The Queen's Bench Division (Commercial Court), in the case of Pride
Shipping Corporation v. Chung Hwa Pulp Corporation and another, (The
"Oinoussin Pride"), (1991) Vol.I Lloyd's Law Reports 126, held that:
D "In the absence of authority I would conclude that, if practical, effect
should be given to the expressed intention of the parties to the bills,
namely, to incorporate the arbitration clause in them, and that it is not
only practical but necessary to do so by adding those words to cl.17
in order to give effect to that expressed intention. Authority however,
E is not absent. In The Rena K, (1978) I Lloyd's Rep.545, in a case
virtually on all fours with the present one in that the incorporation
clause of the bills of lading specifically incorporated the arbitration
clause of the charter-pa11y, and which is to be distinguished only on
the ground that the charter-party there was a voyage charter-party,
whereas here there is a time charter-party, Mr.Justice Brandon at
F p.551, col. I said:

"The addition of these words ("including the arbitration
clause") must, as ii seems to me, mean that the parties to the
bills of lading intended the provisions of the arbitration clause
in the charter-party to apply in principle to disputes arising
G
under the bills of fading, and if it is necessary, as it obviously
is, to manipulate or adapt part of the wording of that clause
in order to give effect to that intention, then I am clearly of the
opinion that this should be done."
(Emphasis suppllied)
H
OWNER AND PARTIES BALTIC CONFIDENCE v. S.T.C. [MOHAPATRA. J.] 709

In the case of Daval Aciers D'usinor Et De Sacilor and Ors. v. Armare A
S.R.l. (The "Nerano"), (1996) Vol.I Lloyd's Law Reports page I, the Court
of Appeal, dismissing the appeal, held inter alia, that :

"(!) looked at on its own, the provision on the front of the bill of
lading only incorporated the conditions of the chaiter (which it was
common ground would not include the arbitration clause in the cha1ier) B
and the reference to English jurisdiction could (in the absence of any
reference to arbitration) only be a reference to the English Courts;
however if the provisions was considered with cl. I on the back of the
bill of lading a different meaning emerged; the provision on the face
of the bill of lading did not expressly prohibit the incorporation of C
terms other than conditions from the charter, nor was the reference to
English jurisdiction couched in language that excluded an English
arbitration agreement which would ex hypothesi be subject to English
jurisdiction; the two provisions read together were not inconsistent
with each other (see p.4 col. I)
D
(2) the parties had not merely used general word" of incorporation,
they had expressly identified and specified !he charter arbitration
clause as something to be incorporated into their contract; by
identifoing and specifying the charter-party arbitration clause it was
clear !hat the parlies lo the bill of lading contract did intend and
agree to arbitration so that to give force to that intention and E
agreemenl !he words in the clause had to be read and construed as
applying to those parlies (see p.4, col.2);

(3) the Court was engaged on the process of construing the words
the parties had written down and used; in their context the words were
to be given the meaning the law ascribed to them and the arbitration F
agreement did not thereby cease to be an agreement in writing if the
words of the arbitration clause were to be manipulated or adapted (see
p.5 col.I), .... " (Emphasis supplied)
Queen's Bench Division (Commercial Court) in Atlas Levante-linie
Aktiengesellschaft v. Gesellschaft Fuer Getriedehandel A.G., and Becher G
(The "Phonizien ''), (1966) Vol. I Lloyd's List Law Reports at p.150 held by
McNair, J., that:

"If conditions of cha1ter-party were read into bills of lading as if
printed in extenso, terms of Clause 22 would be insensible and should
be disregarded; and that extensive verbal redrafting would be necessary H
710 SUPREME COURT REPORTS (2001] SUPP. I S.C.R.

A to make it read as a submission to arbitration between shipowners and
each individual indorsee of a bill of lading; (2) that Court could not
accept defendant's submision that, where the charterer was also the
shipper, the wide words of incorporation used in this case were apt
to incorporate into the bill of lading the arbitration clause even in
respect of a dispute between the shipowner and a subsequent holder
B of the bill of lading. Judgment for plaintiffs. - Hamilton & Co. v.
Mackie & Sons, (1889) 5 T.L.R. 677, applied and followed. Temperley
Steam Shipping Company v. Smythe & Co., (1905) 2 K.B. 791,
distinguished. Thomas & Co. Ltd v. Portsea Steamship Company,
ltd, (1912) A.C. I followed".
c This Court in the case of Union of India v. D.M. Revri & Co., (1977]
I SCR 483, held inter alia:

"There were, after integration, two Secretaries in the Ministry of Food
& Agriculture, but the argument that this event rendered the arbitration
D· agreement vague and uncertain, is based on a highly technical and
doctrinaire approach and is opposed to plain common sense. A contract
is a commercial document between the parties and must be interpreted
in such a manner as to give it efficacy rather than to invalidate it.
It would not be right while interpreting a contract entered into between
two lay parties, to apply strict rules of construction which are ordinarily
E
applicable to formal documents. The meaning of such a contract must
be gathered by adopting a common sense approach and it must not
be allowed to be thwarted by a narrow pedantic and legalistic
interpretation. The Secretary in the Ministry of Food and Agriculture
in charge of the Department of Food, would be the Secretary in the
F Ministry of Food and Agriculture concerned with the subject matter
of the contract and under clause (17), he would be the person intended
by the parties to exercise the power of nominating the arbitrator.
Furthermore, the respondents did not raise any objection to the
appointment of the arbitrator and participated in the arbitration
proceedings without protest, indicating the clear intendment of the
G parties that the Secretary in the Ministry of Food & Agriculture
concerned with the subject matter of the contract should be the
person entitled to nominate the arbitrator (488 B-E, 489 A-E)."
(Emphasis supplied)

H In the case of Alimenta SA. etc. v. National Agricultural Co-operative
OWNER AND PARTIES BALTIC CONFIDENCE v. S.T.C. [MOllAPATRA, J.] 711

Marketing Federation of India ltd. & Anr., [ 1987] I SCC 615 at page 616, A
this court considered the case in which :

"NAFED, an Indian undertaking and Alimenta, a Swiss company,
entered into two contracts for sale and supply of HPS groundnut
kernels. Clause 11 of the first contract stipulated : "Other terms and
conditions as per FOSFA-20 contract terms". Clause 9 of the subsequent B
contract stipulated : :All other terms and conditions for supply not
specifically shown and covered hereinabove shall be as per previous
contract signed between us for earlier supplies of HPS" "The FOSFA
(Federation of Oils, Seeds and Fats Association)- 20 contract provided:
"Any dispute arising out of this contract, .... shall be referred to C
arbitration in London (or elsewhere if so agreed) ...." When disputes
arose between the parties under both the contracts while Alimenta.
sought to commence arbitration proceedings invoking Clause 11 and
Clause 9 of the contracts, NAFED filed a petition under Section 33 of
the Arbitration Act alleging inter alia that there was no valid arbitration
agreement between the parties. The NAFED contended that it was not D
at all aware of any arbitration clause in FOSF A-20 contract and
accordingly, it could not agree to incorporate any such arbitration
clause in the contracts in question. The Hi9h Court disallowed the
petition under Section 33 in respect of the first contract but allowed
the same in respect of the second contract. Affirn1ing the judgment
of the High Court and dismissing the appeals Supreme Court held: (I) E
The arbitration clause of an earlier contract can, by reference, be
incorporated into a later contract provided, however, it is not repugnant
to or inconsistent with the terms of the contract in which it is
incorporated. In the instant case the arbitration clause in the FOSF A-
20 contract provided "any dispute arising out of this contract" and F
as such there would be no inconsistency between this clause and the
terms of the first contract and hence, no difficulty in incorporation of
the arbitration clause in the first contract. Such incorporation would
be quite intelligible (para 7).

The contention that the arbitration clause in FOSFA-20 contract was G
not germane to the subject matter of the first contract and therefore,
was not incorporated in, the contract, cannot be accepted. Even
assmning that the subject matters of the FOSFA-20 contract and the
first contract in question were different, the former being a CIF contract,
while the latter an f.o.b. ~ontract, no question as to the germaneness H
712 SUPREME COURT REPORTS [2001] SUPP. I S.C.R

A of the arbitration clause to the subject matter would be relevant.
Where, as in the instant case, the parties are aware of the arbitration
clause of an earlier contract, the subject matter of which is different
from the contract which is being entered into by them, but incorporate
the terms of the earlier contract by reference by using general words,
there would be no bar to such incorporation merely because the
B subject mailers of the two contracts are different, unless, however, the
incorporation of the arbitration clause will be insensible or unintelligible.
In the instant case, the arbitration clause in FOSFA-20 contract will
fit in the first contract and it will be neither insensible nor unintelligible.
Therefore, the arbitration clause in FOSFA-20 contract was incorporated
C into the first contract. (para 12) (2) However, though the first contract
includes the terms and conditions of supply and as Clause 9 of the
second contract refers to these terms and conditions of supply, it is
difficult to hold that the arbitration clause is also referred to and, as
such, incorporated into the second contract. When the incorporation
clause refers to certain particular terms and conditions, only those
D terms and conditions are incorporated and not the arbitration clause.
The normal incidents of terms and conditions of supply are those
which are connected with supply, such as, its mode and process, time
factor, inspection and approval, if any, reliability for transit, incidental
expenses etc. The arbitration clause is not a term of supply. There is
E no necessity in law that when a contract is entered into for supply
of goods, the arbitration clause must form part of such a contract.
Accordingly, only those terms and conditions are incorporated into
the second contract and not the arbitration clause (para 14)."

A Full Bench of the Calcutta High Court in the case of Dwarkadas and
F Co. v. Daluram Goganmull, AIR (38) 1951 Calcutta I0, considering the question
of incorporation of the arbitration clause in earlier contract into a subsequent
contract, held:

"In the present case, the arbitration clause in the first contract referred
to arbitration disputes which arose "in respect of the goods or in
G reference to any of the conditions hereof." It was in fact an arbitration
clause framed in the.,, very widest terms and if that clause, which was
Cl.17 of the original contract were so written in both the subsequent
contracts, it would be wholly intelligible and not inconsistent with
any of the terms of the subsequent contracts and would on its face
H apply to all disputes arising under the subsequent contracts. That
OWNER AND PARTIES BALTIC CONFIDENCE v. S.T.C. [MOHAPATRA. J.] 713
being so, it appears to me that the arbitration clause which is found A
as Cl.17 of the terms and conditions of the first contract dated 13-12-
1947 between Bubna More & Co., and the respondents was imported
into each of the subsequent contracts by reason of the phrase which
appears in each of the subsequent contract "Subject to all terms and
conditions of the contract N0.73 of 13-12-47 issued to us by
Mis. Bubna More & Co". That being so, there was in each of the B
subsequent contracts an arbitration clause which, if valid, would
govern disputes arising between the parties"

From the conspectus of the views expressed by courts in England and
also in India, it is clear that in considering the question, whether the arbitration C
clause in a Charter Party Agreement was incorporated by reference in the Bill
of Lading; the principal question is, what was the intention of the parties to
the Bill of Lading? For this purpose the primary document is the Bill of Lading
into which the arbitration clause in the Charter Party Agreement is to be read
in the manner provided in the incorporation clause of the Bill of Lading. While
ascertaining the intention of the parties attempt should be made to give D
meaning to the incorporation clause and to give effect to the same and not
to invalidate or frustrate it giving a literal, pedantic and technical reading of
the clause. If on a construction of the arbitration clause of the Charter Party
Agreement as incorporated in the Bill of Lading it does not lead to inconsistency
or insensibility or absurdity then effect should be given to the intention of E
the parties and the arbitration clause as agreed should be made binding on
parties to the Bill of Lading. If the parties to the Bill of Lading being aware
of the arbitration clause in the Charter Party Agreement have specifically
incorporated the same in the conditions of the Bill of Lading then the intention
of the parties to abide by the arbitration clause is clear. Whether a particular
dispute arising between the parties comes within the purview of the arbitration F

- clause as incorporated in the Bill of Lading is a matter to be decided by the
arbitrator or the court. But that does not mean that despite incorporation of
the arbitration clause in the Bill of Lading by specific reference the parties had
not intended that the disputes arising on the Bill of Lading should be resolved
by arbitrator.
G
Coming to the case on hand it is to be kept in mind that while
incorporating the conditions of the Charter Party Agreement in the Bill of
Lading specific reference has been made to the arbitration clause by use of
the expression 'including the law and arbitration clause'. Therefore, the parties
have taken care not to couch the interpretation clause in the Bill of Lading H
714 SUPREME COURT REPORTS [2001) SUPP. I S.C.R.

A in general terms but have made their intention clear that the disputes arising
thereunder should be resolved by arbitration according to the clause in the
Charter Party Agreement. On a fair reading of the clause 62 of the Charter ...
Party Agreement (Arbitration clause) and Condition-I of the Bill of Lading
(incorporation clause) there is no manifest inconsistency or insensibility.
Such was not the case of the parties in the suit nor any such finding recorded
B in the judgment of the High Court (Single Judge or by the Division Bench).
It was also not contended before us that if the arbitration clause in the Charter
Party Agreement is implemented in relation to disputes arising on the Bill of
Lading it would give rise to an absurd/unworkable situation. It was also not
urged before us that the condition in the Bill of Lading incorporating the
C arbitration clause of the Charter Party was null and void being incapable of
being performed. The main ground on which it was contended that the clause
is inoperative is that the expression "Charter Party" in clause 62 of the Charter
Party Agreement was not changed to "Bill of Lading" while incorporating the
same in the latter. This contention, we are constrained to observe cannot be
accepted since it goes against the clear intention of the parties as evident
D from the incorporation clause.
On a careful consideration of the entire matter we are of the view that
there is no good ground or acceptable reason why the intention of the parties
to incorporate the arbitration clause in the Charter Party Agreement in the Bill
E of Lading should not be given effect to. The High Court was not right in
rejecting the prayer of the appellants for stay of the suit.

In the result, the appeal is allowed with costs. The Judgment of the
Division Bench of the High Court confirming the judgment of the Single
Juqge is set aside. The petition filed by the appellants for stay of the suit is
F allowed. The trial court is directed to proceed in the matter according to law.
Hearing fee assessed at Rs. 50,000.

N.J. Appeal allowed.